Oil rose on Thursday underpinned by expectations of a revival in demand growth in the United States, the world's biggest oil consumer, while Europe's debt worries capped gains.

Commodities staged one of their broadest rallies of the year so far on Wednesday as oil, metals and agricultural futures rose despite a stronger dollar, which tends to weigh on prices.

But oil may struggle to gain much further because of a weak demand outlook in Europe and ample supplies.

Investors were also keeping an eye on Cyprus, where banks reopened on Thursday after two weeks as the country was negotiating a bailout with international banks.

"It's the last day of the quarter ahead of a long (Easter) weekend," Olivier Jakob at Petromatrix consultancy in Switzerland said. "There is a lot of uncertainty over Europe and Cyprus but people will not readjust their books ahead of the break."

Brent crude rose by 17 cents to $109.86 a barrel by 1030 GMT. U.S. oil, also known as WTI, rose 16 cents to $96.74, after ending higher for four straight days.

U.S. gasoline and distillates stocks fell more than expected last week even as refinery runs increased, data from the Energy Information Administration showed, indicating a rise in domestic energy demand.

The strength has helped narrow the WTI-Brent spread, which has come into its tightest level since early July 2012, hovering at around $13.00 a barrel.

"There is catch-up potential since Brent is lagging behind WTI," Carsten Fritsch, oil analyst at Commerzbank in Frankfurt said.

Furthermore, better-than-expected output from the North Sea Buzzard field has put downward pressure on Brent futures, which is based on North Sea production.

The rise has mitigated the South Korean deferral to close a tax loophole on crude imports from the UK until July, but tankers are still heading east.


European shares edged up on Thursday, recovering from a three-week low in the previous session as bargain hunters picked up beaten down stocks on the last day of the quarter.

However, the euro languished near 4-month lows after a rise in Italy's funding costs delivered an extra blow to the currency already suffering from ramifications of the Cyprus rescue deal.

Cyprus imposed restrictions on cash withdrawals and may curb the use of credit cards abroad to keep a rein on money flows after the country agreed to a bailout deal that will wipe out some senior bank bondholders and impose losses on large depositors. Cypriots are expected to besiege lenders on Thursday at midday (1000 GMT).

The Italian government's cost of borrowing over five years rose to its highest since October at an auction on Wednesday, reflecting investor wariness over a lack of progress in forming a new government and worries about Cyprus's bailout. Italy's interest cost on new 10-year debt fell, however.

Investors are now awaiting employment data from the United States to see if the numbers will add to the recent string of positive indicators from the world's top economy. (Additional reporting by Manash Goswani in Singapore; editing by James Jukwey)